Accommodative policy measures extended by the US government have provided a boost to Fitch's US growth outlook - these include the proposed extension of a number of tax measures, and the introduction of a second round of quantitative easing. Incoming data has also turned more positive (including strong GDP quarterly growth in Q310), reflecting strength in private consumption and corporate profitability. Consequently, Fitch has raised its US growth forecasts by 0.6% in both 2011 and 2012 to 3.2% and 3.3% respectively. Unemployment is now also expected by Fitch to moderate to 9.1% in 2011 and 8.7% in 2012. Despite the improved outlook, the agency's view remains that the recovery will continue to be mild by historical standards in light of still weak labour and housing markets.
Persistently weak domestic demand continues to weigh on growth prospects in Japan in the medium term. Fitch has made only marginal revisions to its Japan forecasts, revising up expected 2010 GDP growth to 3.2% from 3% after Q310 growth came in at 1.1% against the agency's expectation of 0.6%, while revising 2011 growth down to 1.5% from 1.6%.
Fitch has also marginally revised down its medium term forecast growth in the UK from 2.3% to 2.0% in 2011 and 2.6% to 2.4% in 2012, reflecting still weak consumer and business confidence in the context of heightened volatility in Europe and plans for fiscal consolidation at home.
In the euro area, the agency has stated that although economic challenges facing the peripheral economies are significant, the severity of the market turmoil is not warranted by underlying fundamentals. Still, heightened volatility has eroded the growth outlook for a number of countries, resulting in a downward revision of some of Fitch's growth forecasts in the area. Conversely, the agency has revised up its outlook for Germany due to its view that secular growth is now emerging along with the expected cyclical rebound following the contraction in 2009. Overall, Fitch has marginally reduced its growth forecasts for the euro area to 1.7% in 2010 and 1.5% for 2011. For 2012, the agency has increased its growth outlook to 2.1%.
Emerging markets continue to outperform expectations and Fitch has raised its 2010 forecasts for China, Brazil, and India due to still buoyant economic growth. However, the agency has revised down its Russian forecast as the pace of recovery proved weak, partly as a result of the severe drought and heatwave in the summer. Fitch forecasts growth of 8.4% for these four countries (the BRICs) in 2010, and 7.4% for each of 2011 and 2012.
